Standing is a threshold issue in challenges to administrative decisions.  Prior blog posts have dealt with standing in cases involving challenges to local land use and zoning decisions.  If standing is not established, the party seeking to overturn the administrative decision will see its proceeding dismissed without any consideration of the merits.  Whether a party has standing is quite fact-sensitive but there are certain overarching principals that should be remembered.  Most notably, a petitioner must show in its pleadings that it suffered a harm that is different from the harm suffered by the general public, that the harm is within the zone of interest sought to be protected by the applicable statute, and that the alleged harm is not speculative.

Late last month, the Appellate Division, Third Department, issued two companion decisions that caught our “standing” attention. While the cases involve a challenge to a loophole in the Election Law for limited liability companies, referred to as the LLC Loophole, the matters were resolved on the basis of the lack standing of the petitioners.  In these cases, petitioners raised interesting arguments that they thought would support their standing to challenge an administrative decision, but the Court found them unpersuasive.  The Court’s evaluation of the standing claims may be helpful to those seeking to establish or to defeat standing in the land use and zoning matters.

The Facts     

According to the decisions,  Brennan Center For Justice v. NYS Board of Elections (Docket 524905) and Brennan Center For Justice v. NYS Board of Elections (Docket 524950), petitioners were the Brennan Center For Justice at NYU Law School (the “Brennan Center”), a self-described “not-for-profit, non-partisan public policy and law institute that focuses on issues of democracy and justice” and six individual petitioners who were current or former legislators or candidates for legislative office. Respondent, the New York State Board of Elections, (“Board of Elections”), was described in the decisions as “a bi-partisan agency governed by four appointed commissioners and vested with the statutory authority to issue instructions, rules and regulations pertaining to campaign financing practices, among other things.”

New York State’s Election Law contains provisions that limit campaign contributions for various types of donors.  When limited liability companies were authorized in New York in 1994, the Legislature did not amend the Election Law to address campaign limits for this type of entity. In 1996, the Board of Elections issued an opinion that treated limited liability companies as individuals for purposes of campaign contribution limits. This allowed limited liability companies to donate larger amounts to campaigns than corporations or partnerships could donate. While there were efforts legislatively to close the LLC Loophole, none were successful.

In April 2015, one of the commissioners of the Board of Elections sought to close the LLC Loophole by making a motion to direct the board’s counsel to rescind the 1996 opinion and provide guidance on limits that should apply to contributions by limited liability companies. The motion failed, whereupon the Petitioners sought review in a hybrid Article 78 proceeding and declaratory judgment action (“Hybrid Proceeding”). The Supreme Court dismissed the Hybrid Proceeding, which the Appellate Division affirmed in one of the companion decisions.

In April 2016, one of the commissioners made a new motion seeking approval of a draft opinion that would rescind the 1996 opinion and replace it with an opinion that treated limited liability companies in the same manner as partnerships and corporations with respect to campaign contribution limits. This motion also failed. Petitioners commenced another Hybrid Proceeding seeking to invalidate what the Board of Elections did in April 2016 and to replace the 1996 opinion with the 2016 draft opinion. The Supreme Court dismissed the second action, and the Appellate Division affirmed in the second companion decision.

The Appellate Division Decisions

In both cases, the Appellate Division found that the individual petitioners lacked standing. The appellate court found that their claims of harm – that the LLC Loophole “hampers their electoral campaigns by placing them at a competitive disadvantage against opponents who receive large contributions,” “damages their ability to represent their constituents,” harms the voters by “limiting their choices among candidates and hiding the identity of donors,” and “would cause them to suffer disadvantages in future elections” did not confer standing. The court found all these claims to be neither different nor distinct from those of the public at large and were also conjectural.

Similarly, the appellate court found that the Brennan Center lacked standing. The Brennan Center claimed the LLC Loophole “harms its staff contributors and volunteers by limiting their candidate choices and unduly influencing their political representatives.” The appellate court found that this alleged harm was no different than the harm suffered by the general public and did not support standing. The appellate court also rejected the Brennan Center’s claim that it was injured by having to advocate for the closure of the LLC Loophole, which required it to expend resources. The majority also noted that petitioners could not establish standing by claiming that the LLC Loophole caused disparities in campaign contributions, wryly noting that the “[o]ur political system does not mandate equal funding for all candidates.”

The Appellate Division also found that the courts were not the appropriate place to fix the LLC Loophole. Rather, it “resolved around policy choices and value determinations constitutionally committed to the legislative and executive branches.”

Moral Of The Story

As to the applicability of these decisions to Land Use and Zoning – the bottom line is never forget “standing.”  It is a fundamental element that must be established by petitioners and a fundamental defense that should be considered and raised, if applicable, by respondents, in challenges to governmental actions. As noted in the decisions and in the introductory paragraphs, above, petitioners must show “that they have suffered an injury-in-fact and that the injury is within the zone of interest protected by the statute at issue.” Otherwise they will be found to lack standing and will be unable to challenge a determination on the merits.

In 2012, the New York State Department of Environmental Conservation (NYSDEC) proposed sweeping changes to its State Environmental Quality Review Act (SEQRA) regulations. These proposed changes were not adopted. Rather, five years later, in February 2017, the NYSDEC issued proposed amendments to the SEQRA regulations and a draft generic environmental impact statement, (GEIS), in which it set forth its rationale and objectives for the proposed amendments. We wrote about this development in an April 3, 2017 blog post.

The NYSDEC did not enact the 2017 proposed regulations. Instead, more than one year later, on April 4, 2018, the NYSDEC released revised proposed amendments to the SEQRA regulations and a revised draft GEIS, in which it addressed approximately 250 comments it received in 2017. At the same time, the NYSDEC released proposed revisions to Part 1 of the Short Environmental Assessment (EAS) Form and to Parts 1 and 2 of the Full EAS Form. The 2018 revised proposed amendments made refinements to the existing regulations, in particular to Type II actions. A Type II action does not require SEQRA review. The NYSDEC is accepting comments through May 4, 2018 on these revised proposed amendments.

Here’s a brief summary of the 2018 revised proposed amendments to the SEQRA regulations.

The existing SEQRA regulations note that each agency can adopt its own list of Type II actions and is not bound by a list of Type II actions adopted by another agency. [6 NYCRR § 617.5(b)] The revised proposed amendment to that provision will add a clarifying sentence that explains that an action that is “identified as a Type II action in an agency’s procedures” does not require it to “be treated as a Type II action by any other involved agency not identifying it as a Type II action in its procedures.”

Other proposed changes will indicate that the following are not subject to SEQRA review.

  • “retrofit of an existing structure and its appurtenant areas to incorporate green infrastructure”
  • “installation of telecommunication cables in existing highway or utility rights of way utilizing trenchless burial or aerial placement on existing poles”
  • “installation of solar arrays where such installation involves 25 acres or less of physical alterations” on closed sanitary landfills, certain brownfield sites that have received certificates of completion (COCs), or certain inactive hazardous waste sites that have received full liability releases or COCs

Another change will indicate that the installation of solar arrays on an existing structure is not subject to SEQRA review if the structure is not listed on the Register of Historic Places, is not located in a listed historical district, or has not been determined by the Commissioner of Parks, Recreation and Historic Preservation to be eligible for such listings.

Another proposed change will indicate that the reuse of a residential or commercial structure, or of a mixed use residential/commercial structure, where the use is a permitted use or is permitted by special use permit and does not meet or exceed criteria contained in 6 NYCRR § 617.4, is not subject to SEQRA review. In addition, a recommendation of a county or regional planning board pursuant to General Municipal Law §§ 239-m or 239-n, an agency’s acquisition of or dedication of 25 acres or less as parkland, or the sale of real property by public auction, is not subject to SEQRA review. And, the construction and operation of an anaerobic digester, under certain conditions, will also be added to actions that are not subject to SEQRA review.

The revised proposed amendments also contain some refinements to the DEIS process. Of particular interest to Long Islanders is a proposed insert to 6 NYCRR § 617.9. The insert will apply to proposed actions that are in or involve resources of Nassau or Suffolk Counties. Such DEIS will have to include “measures to avoid or reduce an action’s environmental impacts and vulnerability from the effects of climate change such as sea level rise and flooding.”

One other proposed insert, to 6 NYCRR § 617.12, will be of concern to municipal agencies. That insert requires the lead agency to publish or cause to be published on a publicly available and free website the draft and final scopes and the draft and final environmental impact statements. These documents must remain on the website for at least one year after the later of (1) all permits having been issued, or (2) the action being funded or undertaken.

Stay tuned to see when, or if, the NYSDEC finally enacts the proposed changes to the SEQRA regulations.

On March 28, 2018, the Babylon Town Board adopted a moratorium on any new land use applications that seek to increase a parcel’s wastewater limits established by the Suffolk County Department of Health Services (“SCDHS”) by utilizing Pine Barrens Credits (“PBC”), which effectively transfer development rights from other parts of Suffolk County to properties within the Town of Babylon.  During the period of the moratorium, the Town plans to study the potential impacts to groundwater from allowing developers to increase development density by acquiring PBCs.

The concept of transferring development rights using PBCs derives from the Long Island Pine Barrens Maritime Reserve Act, which was adopted in 1993 for the purpose of protecting approximately 100,000 acres of the Long Island Pine Barrens located within the towns of Brookhaven, Riverhead and Southampton.  As one method of land preservation, the Act authorizes the creation of a transfer of development rights (“TDR”) program, the specifics of which are set forth in the Central Pine Barrens Comprehensive Land Use Plan (“Plan”).  Under the TDR program, a PBC can be used to transfer the development potential from a parcel of property within the protected Pine Barrens Core Preservation Area (“Core”), or other environmentally-sensitive area identified in the Plan (a “sending parcel”), to a parcel in a designated area outside the Core (a “receiving parcel”).  Upon acceptance of the PBC, the sending parcel’s development rights are transferred to the receiving parcel, which may now be developed more intensely.  For a more detailed discussion of the Pine Barrens TDR program, see John Armentano’s blog post, Pine Barren Credits – There’s Money In Those Trees.

Historically, PBCs have been accepted by several towns and by the SCDHS to permit a new development project, or an expansion or change of use of an existing building, that will result in a wastewater discharge (effluent loading) that exceeds the SCDHS’s allowable sanitary flow rate for parcels that are served by an individual on-site sewerage system (i.e., not connected to a municipal sewer system).  The allowable flow rate for a particular parcel is set forth in Article 6 of the Suffolk County Sanitary Code and is calculated based on the proposed use, and size of the building and the parcel on which it sits, as well as the hydrogeological (groundwater recharge) zone in which the parcel is located.  A PBC may be used to permit additional effluent loading up to a maximum of twice the allowable density.

Following the recent approval of two development projects in North Babylon and Deer Park, the Town has decided to take a closer look at the environmental consequences of allowing for increased density.  According to Richard Groh, the Town’s chief environmental analyst, the Town’s planning and environmental control departments have formed a working group to study the impacts to groundwater that will result from continuing the practice of accepting PBCs to increase development density.  Upon completion of the study, the group will submit its recommendations to the Town Board for consideration.

In the Matter of 278, LLC v. Zoning Board of Appeals of the Town of East Hampton et al., dated March 21, 2018, the Appellate Division, Second Department upheld East Hampton Town Zoning Board of Appeal’s (“ZBA”) decision denying a natural resources special permit (“NRSP”) for two parallel 762 linear feet walls built without a permit by Ron Baron (hereinafter “Petitioner”) on his oceanfront property located at 278 Further Lane, East Hampton New York. Petitioner owns two additional, improved properties adjacent to 278 Further Lane, which is vacant. In September 2008, Petitioner built two parallel walls approximately four feet apart consisting of 762 linear feet along the southerly border of its property and continuing along a portion of the easterly border of 278 Further Lane. In response, in 2009 the Town of East Hampton issued citations alleging that the walls were constructed in violation of the Town Code because Petitioner failed to obtain an NRSP from the ZBA, a building permit and/or certificate of occupancy prior to constructing the walls. As part of a settlement agreement, Petitioner removed portions of the walls and submitted an application to the ZBA.

Petitioner made an application to the Chief Building Inspector in April 2010, questioning the limit of NRSP jurisdiction over the walls. By letter dated April 13, 2012, the Building Inspector determined that a “substantial portion of the wall was constructed in a location containing dune land/beach vegetation” and would require an NRSP prior to the issuance of a building permit. Petitioner appealed that determination to the ZBA, requested an NRSP and sought a variance for the accessory structures to remain on the property where there was no principal structure. The ZBA upheld the Building Inspector’s determination and found that an NRSP was required for the walls prior to the issuance of the Building Permit, denied Petitioner’s request for an NRSP, and held that since the NRSP was denied, the application for the variance for the accessory structure was rendered academic.

Petitioner commenced an Article 78 proceeding, seeking to annul the ZBA determination. The Supreme Court denied the petition and dismissed the proceeding, remanding the matter back to the ZBA for further proceedings to determine whether any variances were needed regarding the construction of the walls. Petitioner appealed; and the Appellate Division, Second Department held that the ZBA determination requiring an NRSP had a rational basis, was not arbitrary and capricious, and there was sufficient evidence in the record to support the determination. The Court stated, “petitioner failed to demonstrate that the retaining walls were erected in conformance with the conditions imposed (see Town Code §§255-4-40, 255-5-51).  Since the petitioner, which erected the retaining walls prior to obtaining any permits failed to request a lot inspection by the Town prior to construction and failed to sufficiently document preexisting conditions, the ZBA had to rely on expert testimony to ascertain the conditions in the area prior to construction Its decision to rely on the conclusions of its experts rather than the conflicting testimony of petitioner’s expert did not render its determination arbitrary, capricious, or lacking in a rational basis…” The Court overturned that portion of the Supreme Court decision, remitting the matter back to the ZBA.  The ZBA found the entire wall required an NRSP, confirming that the request for a variance for an accessory structure was academic.

Obtaining an NRSP in East Hampton Town is no small matter.   NRSP applications are regulated under four separate sections in the East Hampton Town Code:

  1. §255-1-11 “Purposes”- General Purposes for Zoning Code requires compliance with applicable sections A through M;
  2. §255-5-40 “General Standards”- General Standards for Special Permits requires compliance with sections A through M;
  3. §255-4-10 “Purposes of Article”- requires compliance with sections A through E, General Purposes for the Protection of Natural Resources; and
  4. §255-5-51 “Specific Standards”- requires compliance with sections A through K, Specific Standards and Safeguards for Natural Resources Special Permit.

Given the number of standards with which an applicant must comply to obtain this special permit, it is never surprising when an application for an NRSP is denied. It is even understandable that Petitioner constructed the walls (provided they were not greater than four feet) without permits, given an initial reading of Town Code §255-11-38 , Fences and Walls, which states, “the following regulations shall apply to all fences and walls in all districts unless otherwise indicated: A. Building permits. The erection, enlargement, alteration or removal of the following types of fences and walls shall require a building permit: (1) A fence or wall greater than four feet in height and located within the required front yard area of any lot; (2) A fence or wall over six feet in height, in any location; (3) Any fence or wall for which site plan approval is required.”  Considering the outcome of this case, however, Petitioner would have been better served making an application to the Town before constructing the walls.

 

Long Island’s ever-evolving agricultural industry won a major battle in the Appellate Division this month when the court overturned Supreme Court Justice Whelan’s decision, which invalidated two local laws of the Suffolk County Legislature.   See, Long Island Pine Barrens Society, Inc. v. Suffolk County Legislature, 2018 NY Slip Op. 01598 (March 14, 2018).

The Appellate Division voted 3-1 to overturn the decision, holding that 2010 and 2013 local law amendments to Suffolk County’s farmland preservation program allowing for new structures and uses on preserved farmland did not waste public property or violate the public trust doctrine.

Enacted in 1974 as one of the nation’s first, Suffolk County’s farmland preservation program is designed primarily to protect lands for agricultural production through the purchase of potential development rights (PDR).  Once the PDRs are sold, development or use of agricultural lands is restricted.

There have been several amendments to Suffolk County’s PDR law allowing, among other things, an expansion of the definitions of “agricultural production” and operation of a “farm stand“.   The 2010 and 2013 local law amendments expanded Suffolk’s farmland preservation program to allow certain structures, uses and special events on preserved farmland.

Plaintiff claimed that the 2010 and 2013 local laws illegally empowered the County to “give back” the previously purchased PDR rights to the landowner, therefore breaching the public trust doctrine.  The basic premise of plaintiff’s claims and the lower court’s decision was that these amendments, by permitting additional uses and development of “preserved” farmland, allowed an “alienation” of development rights by the County. See, Long  Island Pine Barrens Society, Inc. v. Suffolk County, 54 Misc3d 851 [2016].

In general terms, the purchase of development rights is seen by many as the complete sterilization of property so that nothing else can be done.  A simple example would be the sale of development rights to protect a wooded or environmentally sensitive land.  Once the rights are sold, the land should remain undeveloped in perpetuity.

Agricultural preservation through the  County’s PDR program is different since it contemplates active uses of “preserved” farmland for agricultural production such as commercial horse boarding, “U-Pick” operations, corn mazes, hay rides, wineries and alternate energy systems.  Farming, in this sense, is not static, so neither is the land that supports possible active uses.

As the Appellate Division pointed out, the County’s PDR program is consistent with New York’s Agriculture and Market’s Law Section 301  definition of “land used in agricultural production”.   Moreover, the legislative history and case law associated with New York’s Agriculture and Markets law supports the for-profit and active use of the agricultural property for farm operations.  This includes the right and flexibility of the owners to build new structures and try new uses on their land.

Here, the County’s amendments, upheld by the Second Department, recognize the farmer’s need to respond to changes in agriculture.  Long Island’s farmers require not just barns and equipment storage, but also other structures and uses that help to ensure Long Island’s long-term farming survival.  Given the implications here, plaintiffs may appeal this decision to the Court of Appeals.

With all the talk about a border wall between the United States and Mexico, we were amused to come across a proposed law that is pending in both the Assembly and Senate of the New York State Legislature to establish a Nassau County and Queens County border task force to review jurisdiction and boundary disputes. The Senate version (S4412) and the Assembly version (A6223) are identical.

The proposed law provides for a seven-member task force, with members being appointed by the governor on the recommendations of the temporary president of the senate, the speaker of the assembly, the minority leader of the senate, the minority leader of the assembly, the Nassau County executive, the Queens County borough president and the superintendent of the state police. The members of the task force will serve without compensation. The task force would have the power to conduct public hearings, issue subpoenas for witnesses and documents, and recommend legislation. The task force is supposed to issue a report of its findings and make recommendations by January 1, 2019.

You may be thinking – is this task force necessary? Haven’t heard of any border disputes between Queens and Nassau counties, other than the residents of Queens reminding anyone within hearing distance that they are part of New York City and not part of Long Island? Well, we found a few mentioned in news reports.

On December 20, 2010, CBS News reported on the “Snow Removal Border War Between Queens, Nassau.” Seems the residents of Floral Park were luxuriating in snow-plowed streets while across the street in Little Neck, merely 50 feet away, Queens residents were still snowed-in. Another article, from December 16, 2005 in the New York Times entitled “The Defining Line”, reported on the 15½ mile border between the two counties, from Little Neck Bay on the north shore, to Rockaway on the south shore. The article mentioned one homeowner whose house was located in both counties. He had a Douglaston Manor, Queens mailing address, got his mail from the Little Neck, Queens post office, but part of his home was located in Great Neck. He voted in Nassau and considered himself a Long Islander.

So next time you find yourself driving along the Cross Island Parkway near Belmont Race Track, watch for the roads signs that inform you that you are in Queens, then Nassau, and back in Queens in a matter of a few seconds. You have entered, and left, the Nassau – Queens border wars.

In Matter of Save America’s Clocks, Inc. v. City of New York, the majority of a divided 3-2 Appellate Division, First Department, panel attempted to clarify the authority of the New York City Landmarks Preservation Commission (LPC) under the New York City Landmarks Preservation and Historic Districts Law (“Landmarks Law”).  The majority ruled that the LPC may require a private owner of property purchased subject to a prior interior landmark designation to preserve the historic character and operation of the interior landmark and to continue to permit at least minimal public access to it.

The case involved a 19th Century building in lower Manhattan and, in particular, the clocktower atop the building’s western end, which houses a purely mechanical tower clock with a mechanism similar to London’s “Big Ben.” A room on the building’s fourteenth floor has an interior spiral staircase that leads up to a landing housing the clock’s pendulum, and then to the clocktower’s machine room, where the clock mechanism sits.  Above the mechanism is the clock’s 5,000 pound bell.

New York City owned the building from 1968 until 2013, and used it to house courts and city government offices.  During that time, the LPC designated the exterior of the building a landmark, as well as 10 interior spaces of the building as interior landmarks, including the clocktower gallery, the clocktower machinery room, and the “No. 4 Striking Tower Clock.”  The City conveyed the building to a private developer in December 2013, by a deed that expressly provided that the conveyance was subject to the landmark designation.

Shortly thereafter, the new owner submitted an application for a certificate of appropriateness (COA) to the LPC, seeking permission to refurbish the building’s exterior and interior and to modify some of the landmarked interior spaces. Among other things, the application requested permission to convert the clocktower into a triplex private apartment, to disconnect the clock from its mechanism, and to electrify the clock.

The LPC held a public hearing on the owner’s application. There, the LPC’s counsel advised the commissioners that the LPC did not have the power under the Landmarks Law to require “interior-designated spaces to remain public” and “to require that [the clock] mechanism remain operable.” The LPC then approved the COA.

After various individuals and organizations challenged the LPC’s decision in an article 78 proceeding, a decision by Supreme Court, New York County, partially annulled the COA to the extent that it allowed work inside the clocktower that would completely eliminate public access and allowed work that would convert the clock from a mechanical to an electrical system of operation.  The decision was appealed to the Appellate Division, First Department.

Over the dissent of two justices, a majority of the panel affirmed the Supreme Court’s decision after finding that LPC’s determination was irrational and affected by an error of law because it was based on the erroneous advice of its counsel that caused a misunderstanding of LPC’s authority under the Landmarks Law.  The court concluded that, contrary to the legal advice it received, the LPC has the authority under the Landmarks Law to regulate the clock mechanism because it effectuates the Landmarks Law’s statutory purposes and because the law’s language “clearly gives the LPC authority to require the owner to run the clock by its still functioning mechanism and to deny the request to electrify it.”

The court reasoned that the LPC had designated the building’s fourteenth floor interior, including the clocktower machinery room and the clock machinery, as an interior landmark because the clock’s mechanism “represents an element of the city’s cultural and economic history and contributes to the building’s historical value,” and because maintaining it “would promote pride in the ‘accomplishments of the past’ and advance the [Landmarks Law’s] statutory purposes.”

Moreover, the court said, the LPC’s approval of the clock mechanism proposal was not rational. In the court’s view, the building’s “majestic clock, and its historically significant functioning mechanism, is a perfect example of the very reason the Landmarks Law exists,” because, as provided in Section 25-301(b), the “protection, . . . perpetuation, and use of [objects] of special character or special historical or aesthetic interest or value is a public necessity.”

The court also examined whether the LPC has the authority to retain public access to the clocktower, and ruled that, under the Landmarks Law, the LPC may reject a COA that would cause a designated interior to be inaccessible to the public, and may require the owner to continue to provide at least some degree of public access.  The court reasoned that the statutory purposes of the Landmarks Law would be thwarted if the public was denied access to the clocktower and the opportunity to view its historic mechanism.

Whether the First Department’s decision will be the final word on this issue remains to be seen as the sharp division in the panel makes it likely that the case will make its way up to the Court of Appeals.  For now, however, the decision means that the Landmarks Law permits the LPC to require the private owner of property purchased subject to a prior interior landmark designation to preserve the historic character and operation of the interior landmark and to continue to permit at least minimal public access to it.

Early this year, the Supreme Court of New York, Richmond County issued a comprehensive opinion in Galarza v. City of New York, 58 Misc.3d 1210(A), reaffirming and clarifying the nuances of condemnation, takings and just compensation principles as they relate to wetlands restrictions.  The court held that the owner of a 21,000 square-foot vacant lot (“Property”) condemned by the City of New York (“City”) as wetlands was entitled to just compensation in the amount of $669,000, where the fair market value of the undevelopable land was approximately $200,000.

In awarding upwards of 335% of the Property’s apparent value, the court found that the owner was entitled to an incremental increase in just compensation.  This finding was based upon the nature of the wetlands restrictions vis-à-vis takings precedent.  And, it is significant that the court awarded the higher value despite the owner having purchased the Property after it was already designated as wetlands and known to be undevelopable.  This decision follows a late-2017 decision of the Appellate Division in In re New Creek Bluebelt Phase 3 (Baycrest Manor), 156 A.D.3d 163 (2d Dep’t 2017), where the Second Department affirmed, as modified, an increased award as just compensation for wetlands condemnation.

Claimant Ivan Galarza (“Owner”) purchased the Property at a tax lien foreclosure auction in 2003.  At the time the Owner purchased the Property at auction, the Property was already designated as wetlands.  The City later acquired the Property by condemnation as part of its New Creek Bluebelt Phase 4 project.  The Owner and the City both agreed that the wetlands designation precluded the Owner from obtaining a permit to improve the Property and that the highest and best use of the Property, as regulated, would be to remain vacant.  The parties disagreed, however, as to whether the wetlands restrictions constituted a regulatory taking.  The regulatory taking issue is relevant and forms the crux of this entire case because it is precisely the finding of a “reasonable probability of success” in bringing a hypothetical regulatory taking claim to challenge regulations, e.g. wetlands restrictions, that entitles a property owner to the incremental increase in just compensation.

The Threshold Question: Whether the Regulation Is a Background Principle of New York State Law on Property and Nuisance

First, the court addressed the threshold issue of whether the Owner was barred from bringing a takings claim in the first place, because the Owner purchased the Property subject to the wetlands designation.  Relying on Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), Galarza stated that the “logically antecedent inquiry” into a takings claim is whether “the proscribed use was part of the title to begin with.”  Thus, before any owner can claim deprivation of economically beneficial uses of property, courts must first determine whether the right to use the property in the manner prohibited was actually part of the “bundle of rights” acquired with title.

In Lucas, the U.S. Supreme Court held that in order for a regulation not to constitute a taking where it prohibits all economically beneficial use of land, the regulation cannot be newly legislated or decreed, but must inhere in the title itself; the restriction must be a background principle of a state’s law of property and nuisance – already placed upon the ownership of property.  After Lucas, the New York Court of Appeals issued four opinions simultaneously in 1997 known as the “takings quartet.”[1]  These four cases established the “notice rule” in New York, whereby any owner who took title after the enactment of a restriction was barred from challenging the restriction as a taking because the use prohibited was not part of the bundle of rights acquired with title by a buyer.

Almost a decade after Lucas, the U.S. Supreme Court’s decision in Palazzolo v. Rhode Island, 533 U.S. 600 (2001), up-ended New York’s “notice rule.”  The high Court held that a per se notice rule was untenable and altered the nature of property because an owner would be deprived of the right to transfer an interest acquired with title (prior to the regulation).  Moreover, the Court held that simply because an owner acquired property after the enactment of regulations does not transform those regulations into background principles of state law on property and nuisance.

In determining whether New York State’s wetlands restrictions affecting the Property are part of the background principles of New York’s law on property and nuisance, the Galarza court answered in the negative.  Interestingly, the City argued, among other things, that protection of wetlands was grounded in common law and cited to medieval England’s use of wetlands restrictions.  The court noted, however, that these restrictions pre-dated the creation of fee estates and that as individual ownership rights began to take shape, wetlands regulations were abandoned in favor of development.

In addition, the Galarza court distinguished the Palazzolo decision issued by Rhode Island Superior Court after remand from the U.S. Supreme Court.  The Superior Court found that wetlands designations were part of the background principles of Rhode Island’s state law.  Conversely, the Galarza decision found that “[w]hile development of wetlands constitutes a nuisance under Rhode Island law, development of wetlands was not a nuisance under New York law.”  The court chronicled the filling and draining of wetlands and the history and treatment of land development in the City from its inception until the 1970s, at which time conserving wetlands became a concern.  “Given this history, it is clear the New York wetlands regulations did not simply make explicit a prohibition on activity that was always unlawful, and therefore the wetlands regulations are not part of New York property and nuisance law.”

The Galarza court also distinguished a 2016 Second Department ruling in Monroe Eqs. LLC v. State of New York, 145 A.D.3d 680, which held watershed regulations constituted background principles of New York law.  Unlike wetlands regulations, watershed regulations prohibit a nuisance by preventing poisoning and pollution of water supplies and drinking water.  Based upon this analysis, the court found the Owner in Galarza was not barred from bringing a takings claim.

The Regulatory Takings Analysis: Per Se, Partial or Not at All

After having found the Owner’s regulatory taking claims were not barred, the court proceeded to the crux of the case: whether there was a reasonable probability that the wetlands regulations constituted a regulatory taking.  If not, the Owner’s just compensation is limited to the value of the Property as regulated.  If so, then the Owner is entitled to an incremental increase in value as just compensation, i.e. the value of the land as restricted plus an increment.  The increment reflects the premium a hypothetical buyer would pay for the Property in light of the probable success on a takings challenge.  (In other words, the Property would be worth more and, thus, entitled to greater value as just compensation for condemnation.)  To show a reasonable probability of success on a takings claim, the claimant must demonstrate that the regulation renders the property “unsuitable for any economic or private use, and destroy[s] all but a bare residue of its value.”

To determine whether there was a reasonable probability of a successful regulatory takings claim, the court considered Lucas, Tahoe-Sierra Preserv. Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002) and Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978).  Under Lucas, a regulation constitutes a taking per se “only in the extraordinary circumstance where no economically beneficial use of the land is permitted and the regulations have extinguished all of the property’s value.”  In this scenario, no further analysis is necessary.  Galarza highlighted the distinction between “economic use” (returns from actual use or development) and a “property’s value” (market value as regulated or otherwise), but noted that Lucas used these terms interchangeably.  Later, the U.S. Supreme Court clarified Lucas in Tahoe-Sierra : “compensation is required when a regulation deprives the owner of all economically beneficial uses of his land…[and] is limited to the extraordinary circumstance when no productive or economic beneficial use of land is permitted.”  Anything short of 100% loss of value is not a regulatory taking per se and requires additional analysis by the factors enumerated in Penn Central.

Specifically in Galarza, the Property had value as regulated because there is a market for wetlands in Staten Island (discussed below), but the Property had no economic beneficial use.  The court considered two other cases in this respect, namely Lost Tree Vill. Corp. v. United States, 787 F.3d 1111 (Fed. Cir. 2015), and Florida Rock Indus., Inc. v. United States, 18 F.3d 1560 (Fed. Cir. 1994), to determine whether having value without any beneficial or economic use(s) precludes a taking per se.  The court in Lost Tree, on the one hand, held that residual non-economic value (i.e. market value) does not preclude a per se taking because there are no longer any underlying economic uses and the market value (selling the property) is not an underlying economic use.  Florida Rock, on the other hand, held that the value of property as a speculative investment is a proper consideration and that the associated market value precludes finding per se taking.[2]

The court in Galarza agreed with Florida Rock, holding that there is an established market for wetlands in Staten Island (for reasons that are not entirely clear) and that these parcels are bought and sold with an expectation that the restrictions may eventually be changed, waived or modified, or that the parcels might be sold at a profit.  Regardless of the motives and intentions, this market exists for parcels without permissible uses and this market must be considered in the takings analysis.  The Property was found to have a market value of $200,000.  Accordingly, because the Property has value in this market, the wetlands designation does not deprive the Property of all of its economic value (although it does deprive economic use entirely).  Therefore, it cannot qualify as a regulatory taking per se under Lucas.

Having failed to meet the Lucas test, the court then turned to a partial regulatory takings analysis under Penn Central.  This analysis is an “ad hoc, factual inquiry” and considers three factors: (1) the regulations’ economic impact upon the claimant, (2) the extent of interference with “reasonable” investment-backed expectations and (3) the character of the regulation as governmental action.

Penn Central Test Part 1: Economic Impact

First, in evaluating the economic impact, courts must compare the value that the regulation has taken from the property with the value that remains with the property.  Here, the court analyzed precedent set by four previous Second Department cases in wetlands taking cases (ranging from 1984 through 2017).[3]  Based upon these cases, the Galarza court found there was a reasonable probability of a successful regulatory takings challenge where regulations deprived the claimant of all rewarding uses of the property, e.g. development prohibition, and reduced the property’s value upwards of 80-90%.

In contrast, the court cited two other Second Department cases: Adrian v. Town of Yorktown, 83 A.D.3d 746 (2d Dep’t 2011), and Putnam County Nat’l Bank v. City of New York, 37 A.D.3d 575 (2d Dep’t 2007).  In Adrian, the court did not find a regulatory taking where the property value was reduced by a 64% reduction and the claimant sold the 15-acre parcel for $3,600,000, although contended it was worth $10,000,000.  In Putnam County Nat’l Bank, the court also did not find a regulatory taking.  There, watershed regulations reduced the value by 80%, and although the claimant was denied a building permit for a 36-lot subdivision because a sewer could not be built within the watershed, approval was granted for an alternative 17-lot subdivision.  The property was ultimately sold for $1,400,000.  That court found this realization was a “reasonable return”, and the economic impact of the watershed restrictions was not sufficient to constitute a taking.

Here, after various arguments and evidence presented by the parties, the court found the Property to have the following set of values: $200,000 as regulated and undeveloped and $1,701,000 as fully developed.  The court also found that it would cost $469,507 to develop the Property and, when the costs are deducted from the fully developed value ($1,701,000 less $469,507), the value of the return would be $1,231,493.  The difference, then, between the regulated value ($200,000) and the developed value, after costs ($1,231,493), is $1,031,493.  This figure is 84% of the fully developed value.  Another way to view the calculation is that the regulated value ($200,000) is 16% of the fully developed value.  Accordingly, the regulations reduce the Property’s value by 84%.

Penn Central Test Part 2: Extent of Interference with Expectations

Penn Central’s second factor is the extent of interference with investment-backed expectations.  Initially, courts must determine whose expectation to use.  In the regulatory takings context, the expectation of the owner is used because it is his or her land that suffers from the restraint.  To determine just compensation in the condemnation context, the expectation of the hypothetical buyer is used because this perspective determines the owner’s realization upon a sale.

Considering the hypothetical buyer’s expectations, the court must view the reasonableness of the expectation as an objective test: whether the regulation embodied a background principle of New York property and nuisance law.  This is the same consideration in determining whether a regulatory claiming is barred at the outset.  Essentially, it is unreasonable to expect to use property in such a manner prohibited as a background principle of law.  Finding guidance from the U.S. Supreme Court in Palazzolo, Galarza concluded it is reasonable to expect to utilize property as if the regulations did not exist – unless the regulations are background principles, the analysis cannot begin by limiting expectations to only those uses allowed by the regulation if the regulation is not a background principle.

As noted above, the Staten Island wetlands market exists and contemplates that regulations may be changed, waived or modified in favor of future development.  The court here ultimately determined it is not unreasonable for a hypothetical buyer to expect to develop the Property at some future date because, among other things, the wetlands restrictions are not background principles of law.  Accordingly, because any development was totally prohibited by the wetlands designations, then the regulations substantially interfered with reasonable expectations to develop the Property.

Penn Central Test Part 3: Character of the Regulation

The third factor under Penn Central is the character of the regulation.  Courts consider whether it amounts to a physical invasion or, instead, merely affects property interests.  Additionally, courts consider “reciprocity of advantage,” i.e. whether the regulation is part of a general scheme that provides some benefit to the regulated parcel, like a comprehensive zoning plan.  The singling-out of a parcel with a disproportionate burden is indicative of a taking.  The Galarza court found that while wetlands restrictions provide a benefit to the public in general, their burden falls disproportionately on a small group of owners, especially those whose entire parcels are classified as wetlands (as opposed to portions of parcels or parcels that are wetlands adjacent).  Here, the wetlands regulations approach a physical taking because they prohibit development entirely and force the Owner to leave the Property vacant.

Concluding Penn Central

In concluding its Penn Central analysis, Galarza found: (1) the wetlands regulations diminished the value of the Property by 84%, (2) interfered with the reasonable expectations of the Owner or a hypothetical buyer to develop the Property and (3) the character of the regulations is disproportionately burdensome and prohibits all economic use of the Property.  Moreover, the court found that the diminution of value was so great and the prohibitive character so invasive that, even if a hypothetical buyer did not have an expectation to develop, the regulations themselves “nearly approximate a physical appropriation as to constitute a taking under a Penn Central analysis.”

Therefore, the court held just compensation valuation must include the regulated value plus the incremental value to reflect the hypothetical buyer’s likelihood of successfully challenging the wetlands regulations as a regulatory taking.  This increment is a portion of the difference of the valuation over-and-above the regulated value.  Here, the regulated value was $200,000 and the developed value, after costs was $1,231,493; the difference between these figures is $1,031,493, and the increment is a portion of this difference.  (The Owner already receives the regulated, fair-market value as just compensation, so this value is not included in increment calculation).

In determining the actual incremental value, courts consider the time, effort and expense in “de-regulating” the affected land, including without limitation exhausting administrative remedies, prosecuting the takings challenge and the financial cost of “carrying” the affected property.  Here, the court found that the deregulation costs would be $391,882 and deducted these costs from $1,031,493, resulting in a “present day value” figure of $639,611.  The present day value figure must be discounted for inflation and opportunity costs, among other things.  The court determined that the present day value after the applied discount was $469,380 – and this is the incremental value to be applied.  Finally, the court completed its calculation for its award of just compensation: it added the regulated value ($200,000) together with the increment ($469,380), resulting in an award of $669,380 (rounded to $669,000).

—ENDNOTES—

[1] The four cases are as follows: Gazza v. New York State Dep’t of Envt’l Conserv., 89 N.Y.2d 603 (1997), Basile v. Town of Southampton, 89 N.Y.2d 974 (1997), Anello v. Zoning Bd. of Appeals, 89 N.Y.2d 535 (1997), and Kim v. City of New York, 90 N.Y.2d 1 (1997).  Gazza and Basile addressed wetlands restrictions.In determining the actual incremental value, courts consider the time, effort and expense in “de-regulating” the affected land, including without limitation exhausting administrative remedies, prosecuting the takings challenge and the financial cost of “carrying” the affected property.  Here, the court found that the deregulation costs would be $391,882 and deducted these costs from $1,031,493, resulting in a “present day value” figure of $639,611.  The present day value figure must be discounted for inflation and opportunity costs, among other things.  The court determined that the present day value after the applied discount was $469,380 – and this is the incremental value to be applied.  Finally, the court completed its calculation for its award of just compensation: it added the regulated value ($200,000) together with the increment ($469,380), resulting in an award of $669,380 (rounded to $669,000).

[2] The court addressed the nuances of speculation:

The cases that hold that one cannot consider speculative uses in valuing property in condemnation cases refer to non-current uses where it is not probable that the property would be put to such a use in the reasonable near future.  This is different from investors who speculate in property by purchasing it on the possibility of expectation that it will increase in value at some point in the future.  In this [latter] sense, speculative purchases represent investment backed expectation.

In addition, the court noted that dollars are fungible and that the land-speculation market provides owners with monetary compensation the same way as any other market.  Moreover, the key inquiry for purposes of just compensation for condemnation is whether there was a reasonable probability of successfully bringing a takings challenge as of the date of vesting – not whether any expectations of future value might be met.

[3] The cases are as follows: Chase Manhattan Bank v. State of New York, 103 A.D.2d 211 (2d Dep’t 1984), Baycrest Manor, Matter of New Creek Bluebelt, Phase 4 (Paolella), 122 A.D.3d 859 (2d Dep’t 2014), and Friedenburg v. State of New York, 3 A.D.3d 86 (2d Dep’t 2003).

Several Long Island municipalities have local laws that peg the issuance of certain building permits to a requirement that contractors and subcontractors be participants in a “qualified apprenticeship program” that is registered and approved by the New York State Department of Labor. While these provisions are often entitled “safe and code compliant construction” and may be perceived as fostering apprenticeship programs for building construction trades, many contractors on Long Island disagree.

They see these provisions as having nothing to do with safety or compliance. They point out that many of these codes do not require that apprentices work on the project or that the selected contractor even employ such apprentices. Rather, all that is required is that the contractor have a collective bargaining agreement with a union that has a qualified apprenticeship program. They contend that these code provisions are aimed at ensuring that contractors affiliated with certain unions get the jobs by prohibiting non-unionized contractors or unionized contractors with affiliated unions that do not meet the qualified apprenticeship program requirement from getting building permits. And they further argue that these provisions add significant costs to the price of construction.

A recent decision by a federal judge may be changing that. But first, a sampling of codes provisions on Long Island that require qualified apprenticeship programs for building permits.

Town of Huntington

Section 87-55.1 of the Huntington Town Code provides that prior to the issuance of “building permits for the construction of commercial buildings of at least one hundred thousand (100,000) square feet,” applicants must “demonstrate that any general contractor, contractor or subcontractor for such project, must have apprenticeship agreements appropriate for the type and scope of work to be performed, which have been registered with, and approved by, the New York State Commissioner of Labor in accordance with Article 23 of the New York Labor Law.”

Town of Brookhaven

Section 16-3.1 of the Brookhaven Town Code requires that prior to the issuance of  “foundation permits and building permits for the construction of a building located in commercial and industrial zoning districts where the square footage of the footprint is 100,000 square feet or greater” and prior to the issuance of building permits for “an addition to an existing building located in commercial and industrial zoning districts when such addition is 100,000 square feet or greater,” that the applicant “demonstrate that any general contractor, contractor or subcontractor for such project participates in an approved apprenticeship training program(s) appropriate for the type and scope of work to be performed, that has been registered with, and approved by, the New York State Department of Labor in accordance with Article 23 of the New York Labor Law.”

Under Brookhaven’s code provision, unless an existing building has a certificate of occupancy or its equivalent, the square footage of the existing building is included in the calculation of the 100,000 square foot threshold.

Town of North Hempstead

Section 24-68 of the North Hempstead Town Code provides the following. “Every contractor or subcontractor who is a party to, or working under, a construction contract with the Town shall be a participant in good standing in a qualified apprenticeship program that is registered with and approved by the DOL and shall have in place apprenticeship agreements that specifically identify or pertain to the trade(s) and/or job title(s) called for within the construction contract.”

Section 2-9.1 of the North Hempstead Code requires that prior to issuance of a building permit for a “large commercial project,” the applicant must demonstrate that “any general contractor, contractor or subcontractor for such project is a participant in good standing in a qualified apprenticeship program that is registered with and approved by the DOL and has apprenticeship agreements, which are specifically identified as pertaining to the trade(s) and/or job title(s) called for by such project.”

A “large commercial project” is defined as “[t]he erection, construction, enlargement, alteration, removal, improvement, renovation, demolition or conversion of a commercial building or structure where such erection, construction, enlargement, alteration, removal, improvement, renovation, demolition or conversion involves an area of 100,000 square feet or more of floor area. The threshold of 100,000 square feet may be met either in a single building or a collection of buildings located on the same property.”

City of Long Beach

Section 7-48 of the City of Long Beach Code of Ordinances covers apprenticeship requirements. It provides that “as a condition precedent for, the issuance of all building permits…for construction of buildings of at least 100,000 square feet…any contractor or subcontractor, who is a party to, or working under, a construction contract, [must] be a participant in good standing of a qualified apprenticeship program that is registered with and approved by the New York State Department of Labor and to have apprenticeship agreements…which have been registered with, and approved by, the New York State Commissioner of Labor in accordance with Article 23 of the New York Labor Law.”

Town of Oyster Bay

Section 93-16.3 of the Town of Oyster Bay Town Code requires that any contractor or subcontractor who is performing construction on any “structures used for purposes other than private one- or two-family residences, and shall include, without limitation, buildings used for offices, retail or wholesale stores, warehouses, schools, and public buildings” shall “be a participant in good standing of a qualified apprenticeship program that is registered with and approved by the New York State Department of Labor and to have apprenticeship agreements, as evidenced by valid D.O.L. certificates of completion which are specifically identified as pertaining to the trade(s) and/or job title(s) necessary for said construction project.”

Sections 93-16.1 and 93-16.2 apply this provision to buildings of 100,000 square feet or more, and have other refinements to that 100,000 square foot threshold.

 Legal Challenge to Oyster Bay Provision

A legal challenge to Oyster Bay’s provisions is pending in the federal court in Central Islip. That case is entitled Hartcorn Plumbing and Heating, Inc. v Town of Oyster Bay.  Plaintiffs contend that Oyster Bay’s code is unconstitutional as it applies not just to contracts that the Town is a party to or funds, but also applies to wholly private contracts.

On February 7, 2018, Judge Hurley issued a preliminary injunction, enjoining the Town of Oyster Bay from enforcing Town Code 93-16.3, with respect to any contract that the Town of Oyster Bay is not a “direct or indirect party.” As a result, at least for now, projects that do not involve the Town of Oyster Bay as a party to the contract or are not funded by the town can get building permits without demonstrating that their contractors participate in “qualified apprenticeship programs.” Whether that ruling is ultimately upheld as the case proceeds is unknown, but it may result in other municipalities reexamining their code provisions voluntarily or as a result of similar court challenges.

On January 24, 2018 the Appellate Division, Second Department affirmed in part, and reversed in part, a trial court order granting Defendant, Bay Ridge Methodist’s counterclaim that certain cladding and a drip edge (a system used to deflect water) installed by the Plaintiff, David S. Kimball, along a party wall shared by the parties constituted a trespass.  See, Kimball v. Bay Ridge United Methodist Church, 2017-03575, Jan. 24, 2018.

In upholding the trespass, the Court stated that Kimball “failed to raise a triable issue of fact regarding whether the cladding and drip edge encroached onto the [Church’s} property.”  As such, the trial court’s trespass finding against Kimball, in favor of the Church, was upheld. However, the trial court’s finding that the trespass must be removed was reversed.

In reversing, the Court stated that “RPAPL 871(1) provides that an ‘action may be maintained by the owner of any legal estate in land for an injunction directing the removal of a structure encroaching on such land.  Nothing herein contained shall be construed as limiting the power of the court in such an action to award damages in an appropriate case in lieu of an injunction or to render such other judgments as the facts may justify.'” (emphasis added)

Finding that the Church failed to demonstrate the absence of any triable issues of fact concerning whether the balance of equities weighed in its favor, the Appellate Division vacated the injunction directing Kimball to remove the cladding and drip edge from the shared wall holding that “[i]n order to obtain injunctive relief pursuant to RPAPL 871(1), a party is ‘required to demonstrate not only the existence of [an] encroachment, but that the benefit to be gained by compelling its removal would outweigh the harm that world result.”

Consequently, since the Church did not prove that the benefit gained by the Church in compelling Kimball to remove the cladding and drip edge would outweigh the harm that would result to Kimball if removed, the Court remitted the matter back to the Supreme Court, Kings County for further proceedings.

Under RPAPL 871(1), and upon the trespass finding, the party trespassed upon became the party with the burden to prove that the benefit of removal of the trespass outweighed the harm to the trespassing party.  It is not enough for injunctive relief that a trespass exists.  The trespassed upon party is tasked with the burden to prove that its damages outweigh those damages that the trespassing party may incur upon removal.

It is interesting to note that, RPAPL 871(2) specifically states that “[t]his section shall not be deemed to repeal or modify any existing statute or local law relating to encroaching structures.”  It would be interesting to know whether a common law trespass claim was asserted in this action, or whether another statute or local law was available that could have resulted in a different and more favorable outcome for the Church.